canceling national debt

Since we are a nation in debt, my question is who do we owe this debt to? Is it other countries or private american companies?
What would happen if they just decided to “cancel the debt” and say we owe nothing. Could companies then sue the government? Would other countries have to attack us to get their money back?
Could the government say “Sorry, we decided we don’t owe anybody anything. What are you gonna do about it?”

It is a variety. For example, US Savings Bonds are debt. They are owned by ordinary Americans.

The US could default on it’s loans as you propose. Other countries have done it (I believe Argentina did recently?). We could get away with it in the shortterm, seeing how we basically run the world. It means that no one will ever lend us money again. It means massive massive trouble in the economy. It means that every citizen who owns bonds will be clamoring. It means big trouble. But yes, we could it.

Most of America’s debt is owed to American citizens in the form of various kinds of bonds. If America cancelled its debt, those bonds, widely held as a good, safe, long-term investment with all-but-guaranteed returns, would become worthless. They would stop accruing interest and they would be literally unsaleable. This would have an effect on the economy somewhere between a large typhoon hitting a small skiff and a Texas-sized meteorite hitting the planet Earth.

Cancelling foreign debt would be slightly less stupid, but only slightly: If you loan fifty bucks to your roomate and he decides he isn’t going to pay, how willing will you be to loan him money the next time he asks? The same thing works at the international level. But the US is a creditor nation, which means we are, by and large, rich enough to have lent out more money than we owe. So we may not have all that much foreign debt to cancel, but it isn’t a good idea to piss off your neighbors. Besides, any group that takes on bad debt, be it an individual or a bank or a nation, risks going bankrupt when money it thought it had coming ain’t coming.

So it’s probably better to manage debt through reducing spending, all things considered.

US government debt takes the form of government bonds or securities, issued to individuals and institutions both in the US and abroad, and (frequently) transferred by them to other individuals and institutions.

The security of the US government is pretty well the finest in the world, meaning that it is regarded as less likely to default on its debt than any other debtor. As a result it can borrow more cheaply than any other debtor.

Yes, the US could default on its borrowings. Millions of Americans would lose money as a result, when we consider how many of them own government bonds, either directly or through institutions such as pension plans, or hold securities which in turn depend on government bonds (as most insurance company securities do). Many US financial institututions - insurance companies, pension plans - would be bankrupted as the assets (US bonds) with which they match their liabilities would have no value. US banks might fail. Similar consequences would ensue for individuals and institutions outside the US, although the consequences might be less sever for them as a greater proportion of their assets would be held in the securities of other governments. There would undoubtedly be attempts to seize US government assets abroad, although these would have limited success. The US government could borrow no more money and would have to balance its budget immediately, and invent overnight a new monetary system which did not depend on anybody depositing funds with the Federal Reserve (which, naturally, nobody would be prepared to do). The US dollar would cease to be the world’s reserve currency, and would devalue sharply.

Apart from that, everything would be fine.

And, probably, a lot of the people who would decide to cancel the debt would lose lots of money.

Cancel the debt? To make an analogy:

Take a loaded .44 Magnum, stick it in your mouth and pull the trigger, then see what its like to live with the consequences.

The whole system is based on trust in the US Government to NOT default on its debt. After all, the currency isn’t backed by anything but trust.

Cancel the debt, burn all the currency, close all the banks, shut down Wall Street, cancel all social programs (including Social Security and VA benefits), get rid of all pensions, dissolve all mortages and revert to a total barter economy. Sounds like a terrific ecomomic plan! :eek: :rolleyes:

(Of course, we’ve had a couple of administrations in the last 20 years that have been hell-bent on bankrupting the country so the plan may be in place.):smack:

Now THERE is a terroristic tactic. EVERYBODY who owns a government bond, cash it in.

Savings bonds comprise virtually nothing of U.S. Government debt which is funded mostly by T-Bills/Notes/Bonds. A little over 40% of US Government debt is owned by foreigners. For a while, Japan practically financed our spending.